Central Bank Publishes Macro-Financial Review I 2018

The Central Bank’s first Macro-Financial Review (MFR) of 2018 says the financial system is strengthening with the Irish economy showing substantial growth. But it says the risk of an abrupt negative change to financial market conditions has intensified.

The potential for domestic businesses and households to postpone investment decisions until the future trading relationship with the UK becomes clear

A Brexit-related slowdown in UK and Irish economic growth affecting Irish bank loan portfolios, with a potential rise in NPLs

New operational challenges for Irish banks looking to issue debt through the UK

UK insurance firms losing the right to do business in Ireland, affecting competition and product availability.

Sharon Donnery, Deputy Governor, Central Banking, said: “The risks arising from Brexit, especially a ‘hard’ or disruptive Brexit, are far reaching for Ireland. The window of opportunity for resolving a range of issues for exporters, banks and insurance companies, to name but a few, is closing fast and contingency plans need to be fully prepared.”

Other risks include:

Geo-political risk triggers such as international tax arrangements and protectionism in international trade financial markets asset valuations – many of which appear high and vulnerable to changes in market sentiment

Concentration of bank exposures to property-related lending

High levels of household and public debt, with the household sector in Ireland the fourth most highly indebted in the EU

A relatively small number of payers accounting for a large share of corporation tax, leaving the State exposed to one-off shocks and political developments

A more general move towards protectionism in international trade

Changes in international corporate tax arrangements, both in the EU and US. Many international firms that bring significant levels of foreign direct investment operate in Ireland as bases for their EU operations.

The Macro-Financial Review offers an overview of the current state of the macro-financial environment in Ireland.